Budget 2026 marks a decisive shift in India’s Auto and EV landscape by lowering battery input costs, deepening semiconductor capability, and advancing cleaner logistics, all while aligning with the climate and modal shift priorities outlined in the Economic Survey.
A central thrust of the Budget is the push for stronger Domestic Value Addition (DVA) in the EV supply chain, which strengthens India’s long‑term energy independence by building local capacity across mineral processing, cell manufacturing, and recycling.
This reduces reliance on strategic imports and stabilises exposure to global commodity volatility. In parallel, the recently concluded India–UK Free Trade Agreement introduces an external growth catalyst for the sector by creating phased, quota‑based duty reductions on select UK‑origin vehicles and expanding market access for Indian automotive exports.
This opens new headroom for OEM sales growth in premium segments and enhances export opportunities for components and EV subsystems, while protecting the domestic mass‑market EV ecosystem. Together, these developments position the industry for a more resilient, self‑reliant, and globally integrated growth trajectory.
Battery costs and cell-centric value addition: At the core of the Budget’s EV strategy is a continued push to compress the cost of energy storage. The extension of basic customs duty exemptions on capital goods for lithium-ion cell manufacturing, now broadened to battery energy storage systems and combined with concessional duty treatment on key inputs, marks a clear policy signal to shift from an assembly-oriented model to deeper, cell-centric value addition.
Complementing this is the custom duty exemption on critical minerals such as lithium and cobalt, together reducing cell and pack input costs and strengthening the business case for domestic gigafactories. Crucially, this cost‑down trajectory aligns with NITI Aayog’s long‑term electrification outlook—where EVs are projected to reach nearly 90 per cent of new vehicle sales by 2047—by lowering the total cost of ownership early in the curve and bringing mass‑market segments into the adoption window.
Semiconductor deepening with ISM 2.0: The launch of India Semiconductor Mission 2.0 expands the country’s semiconductor ambition beyond fabs and ATMP units to include equipment, materials, full-stack Indian design IP, and resilient supply chains. Supported by industry-led research and training centres, ISM 2.0 is paired with a significant scale-up of the Electronics Components Manufacturing Scheme (ECMS) to ₹40,000 crore.
This positions India to localise high-value EV subsystems—power electronics, controllers, sensors, battery management systems—that today remain import-dependent. Building on ISM 1.0 (₹76,000 crore announced in late 2021), which already anchors ten projects under implementation and several poised to begin chip production this year, the combined semiconductor strategy shortens EV platform lead times, stabilises sourcing, and improves unit economics. It pushes India higher up the semiconductor value chain at a moment when EV architectures globally are becoming more electronics-intensive.
Greener, more predictable logistics: Budget 2026 places major emphasis on logistics decarbonisation and reliability—critical for automotive supply chains. The operationalisation of 20 new national waterways over the next five years, establishment of ship-repair ecosystems in Varanasi and Patna and launch of a coastal cargo promotion scheme targeting a 12 per cent modal share for coastal and inland water transport by 2047 work collectively to shift cargo away from carbon-intensive road freight.
This is reinforced by a new east–west dedicated freight corridor connecting Dankuni and Surat, optimising long-haul flows for minerals, components, and finished vehicles. These measures directly reflect the Economic Survey’s call for a logistics reset— expanding waterways, digitising ports, reducing turnaround times, and improving climate resilience.
For OEMs and suppliers, an “inland-first” logistics playbook—multimodal nodes near plants, barge-compatible packaging, synchronised TATs can deliver verifiable Scope-3 reductions alongside more predictable freight cycles and lower delivered costs.
MSME liquidity and scale: The auto-components industry, with a turnover of ~₹6.73 lakh crore in FY25 and a US$453 million trade surplus, enters the Budget cycle on strong fundamentals. Steady localisation and higher value addition have expanded competitiveness. Budget 2026 builds on this momentum through MSME-focused equity vehicles, augmentation of the Self-Reliant India (SRI) Fund, and deeper usage of the TReDS invoice-discounting ecosystem.
These measures unlock capital for Tier-2 and Tier-3 suppliers to invest in dies, fixtures, automation, and quality systems, critical for producing high-precision EV components and electronics. Stronger supplier finance closes the loop between lower import content, better domestic quality, and greater export resilience, allowing the components base to scale in alignment with OEMs’ requirements for semiconductor-intensive EV platforms.
Climate alignment and competitiveness: Crucially, Budget 2026 advances India’s climate-aligned industrial strategy. The Economic Survey emphasises cleaner freight, port modernisation, and resilience to global supply-chain shocks. The waterways push, coastal cargo incentives, and dedicated freight corridors directly support emissions-efficient logistics.
Meanwhile, battery-related customs relief reduces near-term emissions by lowering EV prices and accelerates long-term decarbonisation by localising carbon-intensive imported inputs. As ports digitise and shipping decarbonises, companies gain the ability to quantify Scope-3 reductions—an increasingly important requirement for investor-grade transition plans, global OEM partnerships, and export-market credibility.
What it means for the industry:
• Cost curve: Duty reliefs on lithium-ion manufacturing equipment and critical minerals compress the battery bill of materials—the single largest cost in EVs. By reducing exposure to commodity volatility, manufacturers gain pricing headroom and can accelerate EV penetration beyond early adopters. As domestic cell production scales, OEMs can stabilise margins through multi-year offtake agreements and more predictable product planning.
• Capability curve: ISM 2.0, combined with the expanded ECMS, allows India to localise complex, electronics-heavy EV subsystems—power electronics, BMS, sensors, controllers, ECUs—dramatically improving unit economics. Localisation reduces lead times, enhances design flexibility, and positions Indian OEMs to iterate EV platforms faster, essential as vehicle architectures become more software-defined and semiconductor-intensive.
• Carbon curve: With 20 new waterways, coastal cargo incentives, and new freight corridors, the logistics backbone shifts toward cleaner, more reliable modes. This reduces dependence on high-emission road transport and unlocks measurable Scope-3 reductions. As multimodal hubs near OEM plants mature, logistics costs fall structurally, improving both environmental and operational performance.
• Supplier finance: MSME-focused equity and liquidity measures strengthen Tier-2 and Tier-3 suppliers at a time when the components industry is financially robust and focusing on creating synergies. Investments in tooling, automation and quality systems become more accessible, enabling deeper localisation, reducing reliance on imported sub-assemblies, and enhancing export reliability.
The supply chain becomes more capable of supporting next-generation EV and semiconductor-heavy platforms. Budget 2026 materially strengthens the strategic competitiveness of India’s Auto & EV industry.
By combining battery-cost relief, semiconductor deepening, logistics decarbonisation, and supplier-side capital support, it accelerates EV adoption, expands domestic value addition, and builds a more resilient and climate-aligned supply chain—moving India closer to a self-reliant, decarbonised mobility economy.
(Disclaimer- The author is Saket Mehra, Partner, Grant Thornton Bharat. Views are personal)
